Nairobi writer on Banking, Finance, Technology, and Investments

Category Archives: CSR

Equity Bank 2009 AGM (it’s 5th) was held at the Kenyatta International Conference Centre on Thursday March 26. This capped another year of spectacular performance by the bank during an otherwise difficult 2008 US$1 = Kshs 80

Start on time? Last Equity forum was 45 min late: this one was scheduled to start at 10 a.m. and was late by about the same delay. Last time we were entertained by an entire Boney M album, this time it was a series of advertisements for the bank, with a patriotic them recalling images of tourist splendor (majestic Mara), agricultural potential and athletic achievements (Kipchoge Keino, safari rally, safari sevens rugby) all ending with the line we are proud to be Kenyan

The main speakers of the day were Peter Munga (Chairman – Chair), James Mwangi CEO and Mary Wamae (Company Secretary)

The Chairman took up a long time by reading his entire written speech – almost 20 minutes. He handed over to the CEO who also ran down a series of financial highlights for the year including;

– Market capitalization rose in 2008 from 54 billion to 66 billion (only NSE company whose shares appreciated in 2008 – by 3%)
– Earning per share up from 6.9 to 10.6 – and dividend per share also up 50% from 2 to 3
– Cost to income ratio unchanged at 60%, and down from almost 80 four years ago
– Helios investment (sale of 25% for 11 billion) was the smartest thing the board did – gave the bank the capital & muscle to grow. With their 19 billion capital and subordinated debt of 6 billion gave the bank 27 billion of capital (most cap bank)
– Opened 35% branches, installed 150 ATM’s

Speech also took about 20 min as he added:

– All the awards the bank won in 2008 (Euro money, Africa Investor) which were on display for good measure
– The bank is a case study at Columbia, Harvard, Stanford, IESE and Lagos

The company’s secretary also read out the report of the directors never seen that happen

Fun stuff at AGM’s is always the Q&A with shareholders:

Bad blood in banking sector: one shareholder commended the bank for the fight-back in his area (Machakos) where rumors led to a run at the branch, and a team (with cash) visited to reassure residents that the bank was strong. The bad blood was attributed to competitors who are jealous of Equity’s bank success – CEO mentioned a proverb of a tress that grows taller than the forest canopy and then gets buffeted by winds from all directions. He said they can withstand such challenges because of (i) capital of almost 27 billion (ii) liquidity of almost 66% and (iii) good asset quality

Why borrow foreign funds? one shareholder asked why the bank borrowed. The lines provide long-term funds for long term lending 3-5 years). E.g. a German loan was to support investment in irrigation schemes, of which there are now 3. CEO assured the shareholders that the loans from (Dutch, French, and German institutions) were all denominated and would be repaid in Kenya shillings, cushioning the bank from exchange losses

Most generous company in Kenya: one shareholder asked why the company did not publicly participate in corporate social responsibility (CSR) programs? CEO said that Equity, unlike other companies, which gave a little money with a lot of publicity, was actually the biggest corporate spender in Kenya – bigger even than the Telco’s (Safaricom?, Zain?) and gave some examples
– when they opened 4 branches in Nyanza in 2008, they donated 20,000 beehives to women’s group’s as well as 10,000 avocado seedlings –avocado’s and honey were the most promising products of the region (i.e. beehive can generate 36,000 to 48,000 annually) .
– in Eastern province, they donated sorghum seeds to the residents of Ukambani – and will partner with East African breweries (EABL) to ensure that harvest from the residents will be bought by the beer giant.
– In the education sector, they sponsored 186 top-performing high school student by paying their university fees at a cost of 112 million shillings
– Fanikisha loans (to women groups) has become their flagship product with over 187,000 loans, and in agriculture disbursed 70,000 new loans in 2008
This kind of CSR that Equity engages in, is not publicity, but it is actually sustainable and transform lives by giving individuals the power to generate incomes

Regional diversification: Uganda was a takeover, Sudan is a greenfield and they will watch the growth to see which strategy is better for expansion to other African countries.
– Uganda starts operations at end of March with 30 branches (the biggest branch network in Uganda), and open another 20 this year – he said they had already increased profit by 100 in the second half of 2008 since they took over, even while doing a re-brand operation. CEO said Uganda had better growth prospects than Kenya which had a lot of negative politics
– Sudan starts in Aprilslip of the tongue? CEO at one point said … “…when we open in South Africa” while also mentioning looking at Rwanda and Tanzania as being next

Buy other Banks? one shareholder asked that they buy up more shares in housing finance, while another suggested they also buy up National Bank of Kenya in which the government is offloading more shares. CEO said they would do their due diligence on NBK and if they were announced as being in the running, shareholders would know soon, but if not, then there was something they did not like after their analysis of NBK (as far back as 2005, Equity have been interested in NBK). CEO mentioned that RBS of Scotland took over a bank before the economic crisis, and choked on that toxic investment that has reduced its value to a mere fraction (from $119 billion to $3 billion)

Enough bad loan provisions? these increased from 600 million to 1 billion, but was that enough one shareholder asked, considering that some of these were for Safaricom shares? CEO said they lent individual 80% for Safaricom shares with investors paying 20%, then the over-subscribed IPO allocated just 21% (which the investor paid or), and so the 1% loan was repaid in the first week

Poor bank network systems: one shareholder complained about the downtime of the bank’s IT systems – at branches or at ATM’s which perhaps led to people saying the bank was shaky. CEO said they have been upgrading the platform over the last few weeks and it has caused some hiccups but they would be over. Equity is now branchless, you can bank in Kenya, Uganda, and Sudan seamlessly. Also, look for new branches as queues and crowds will no longer be an issue

Kenya immune from global crisis? CEO said in the year 2000, Kenya economy shrunk by 2% while Equity grew by 100%
– The stock market dipped in 2008 as foreign investors (who constitute 70% of trading) left the NSE, but they are now coming back
– Said Kenyans were being scared. there are no toxic loans in the sector. If the Kenyan economy grew by 2.8% in 2008 and is expected to grow by 3.6% in 2009, and even though tourist numbers and exports will be affected, overall we should not unnecessarily panic about… except in the capital markets.

Argument against being a stock-broker: one shareholder asked why they did not buy a stockbroker like NIC (bought Solid stockbrokers) and yesterday Coop bank (bought into Bob Matthews stockbroker)? CEO said that not going to happen as stockbrokers have such bad reputations and toxic assets. Equity already has a custodial license, they already employ 8 stockbrokers, and get 70% of the transactional income – so why the need to become a broker? They get the profit now, without the hassle
– said as custodian, they are the largest custodial account holder with over 50% of all CDS accounts in Kenya
– he exhorted all shareholders to transfer their shares from their stockbrokers to Equity Bank.

Shareholder votes:
– first and final dividend for the year of Kshs. 3 per ordinary share of Kshs. 5
– Election of directors: Ernest Nzovu was re-elected while Dr Ezekiel Alembi (of Kenyatta University) and Professor Shem Migot- Adholla (former GoK dream team PS) were elected as new directors. The Chairman mentioned that Peter Njeru Gachuba (Africap) and Linus Gitahi (CEO Nation Media Group) had retired to make way for the new directors.

Share split: can’t be selfish when doing well
– Special Business was the share split that every ordinary share be sub-divided into ten shares
– CEO explained that shares had become too expensive at the Nairobi Stock Exchange, which made it difficult for shareholders to judge their true values. E.g. to buy minimum 100 shares of equity costs 12,700 while to buy KCB costs 1,700 and co-op just 610 shillings
– company has 10,000 shareholders and 3.5 million customers. The share split will enable more customers to become shareholders
CEO gave a history of bonuses and splits:
i Year 2000: share split- 1 share sub-divided into 4
ii 2004 bonus – 5 bonus shares for each one held
iii 2007 bonus – 3 bonus shares for one held
iv 2009 split – 1 share split into 10
– so if you had one share in 2000 worth 20 shillings, that share was now worth 7,500
– the register closed yesterday (March 25) and the new shares start trading on May 25
– CEO exhorted shareholders to hold on to their shares, as they could be expected to go from the current 13 (130) to 34 (340 was the previous high before the bear market)

Odd moments:
– Managers and board were asked stand and bow to the shareholders
– CEO was at one time referred to as chief servant
– CEO seemed to delight in the woes of Citiiank and the US banking sector
– The meeting started and closed with a positive prayer by Canon (priest) who obviously must be a shareholder too.

GTV folds
It has been a bleak weekend for Kenyan sports – Gor Mahia lost 0 – 5 to a visiting team from Rwanda, Zimbabwe has now defeated Kenya four matches in a row in Cricket at Mombasa & Nairobi, but most shocking was the sudden shutdown/collapse of GTV – who for the last two years were the main broadcasters of the English soccer premier league in several African countries.

Their statement attributes the collapse to the ongoing global credit crunch, but their demise seems similar to that of Kirch Media who spent big in the late 90’s to acquire the rights to broadcast two World Cup events and also 100 years of formula one races among other media properties – but who folded shop a few years later in one of Germany’s biggest corporate collapses.

What next? I expect Multi-choice DSTV to step in and pay the liquidators of GTV about 30% and take over their broadcast rights in Africa (and perhaps hike their prices too), while in Kenya, a successful bid for GTV’s soccer rights could also be an opportunity for Wananchi’s Zuku to make a nationwide impact.

Business impact in sports
The local impact of the economic crisis is likely to be replicated in sports.

– The local soccer league did well last year (2008) with private interests participating and sponsoring the teams & competitions – there was huge fan interest, media interest (for once local radio stations actively previewed, reviewed and encouraged attendance of local soccer matches) and a private security firm (G4S) was in charge of the ticketing and match revenue collection.

But will the economic crisis affect things? Will sugar teams like Sony and Chemelil continue to support sports when even the only profitable company in the sector (Mumias) has profits down 80% this year? And what about Sher (Flower) and other small company-sponsored teams?

– The local motoring scene was mainly supported by KCB last year and fortunately, despite the bank’s ongoing problems – particularly with a fellow sponsor (Triton), they have agreed to also sponsor the 2009 rally season. However, the loss of Paris Dakar to South America shows the global nature of sports and that events (like the Safari Rally) can be translocated elsewhere if countries don’t pay attention to details of sports management. in 2009, pressure shifts to South Africa to progressively move nearer the completion of stadiums for the 2010 world cup.

– Rugby continues to be well-organized, attract top-notch sponsors, and the annual Safari Sevens is the premier sports event(party) – with Kenya’s Sevens Team off to participate in the IRB Sevens World Series next weekend.

Bad management
Another problem in Kenya is bad management – and while every sport has behind the scenes ramblings and wrangles, Kenya is no exception with motor sports, cricket and soccer feuds that have long been a distraction for the sports.

Also, all sports go through generational changes – and in the off-season, Athletics Kenya management went through elections that were well contested. However, in Kenya we need to have longevity of athletes, not management officials; it is rare to have someone (except for Catherine Ndereba) participate successfully at more than one Olympic event. Other countries stars like Haile Gebreselassie, Hicham El Guerrouj and Kenenisa Bekele have successfully represented their countries at consecutive Olympics – while in Kenya it is sad that it is mainly the officials who show such endurance – and that people who were ‘in charge’ of sports like soccer in the 1980’s and 90’s are still in charge today (Sammy Obingo, Sam Nyamweya) – and continue to bicker and blame each other for the problems in the sport.

Having recently read Foul, FIFA comes across as a corrupt institution that does not care about individual countries attempts to improve management of their sports affairs – FIFA wants to dictate who will be the local managers of soccer, and no matter how bad or corrupt they are, they are FIFA’s people who should not be interfered with unless a country wants to be suspended from regional or international soccer competitions.

EDIT: Feb 4 2009 – South Africa based DSTV SuperSport channel reclaimed the rights to broadcast live all English premier league matches, including those from collapsed GTV in 22 African countries over the next two seasons

KCB has been rather silent on the Triton matter even as the company’s share price took a mini hit and its profitability outlook was downgraded in some circles.

The last release from their website was in reference to the launch of a Sustainability Report of the group. It’s not online yet, though it will be, an interesting report with lots of rarely disclosed facts on the bank, mostly their corporate social responsibility (CSR) activities, and will be repeated every two years.

in the reportKCB Brand – has a 75% corporate reputation, is the most popular financial brand, and the 4th most popular in Kenya (after Safaricom, Kenya airways and Coca-Cola) according to the Steadman Group.

Silence on Triton can be explained by KCB’s customer privacy guidelines – the bank assures customers of privacy through stringent procedures and guidelines and undertake responsibility for any breach of confidentiality that may arise

Impact of Triton policy on responsible lending requires that the KCB audit committee meets twice a month, credit committee also twice a month to discuss the risk profile of bank, and the risk management committee meet quarterly or when required

Corruption & Triton: KCB has zero tolerance to corruption, and has 110 ethics champions trained to combat corruption. Also in 2007, KCB exited from Transparency International (TI) bribery index, it prohibits political contributions (direct or indirect) from bank funds, and is a founder member of Ethical Business Group Kenya. The Report states that 2 staff were dismissed and 9 terminated.

In the education sector, they partner with AIESEC and the Palmhouse foundation

Triton ends well? for KCB: The Triton matter may be a foregone conclusion if the Daily Nation article about an out of court settlement between the Government of Kenya and its financiers (KCB, Fortis, Ecobank, Equatorial banks) is true – and that the government (i.e. taxpayers) may pay the financiers off to not go to court over their funds lost with Trition and the Kenya Pipeline Corporation (KPC). The silence will mean that unsavory happenings at KPC will (maybe) not be exposed further, clearing the way (hopefully) for an IPO of the troubled company.

Access Kenya (AK) held its first AGM since listing on the Nairobi stock exchange (NSE). Here in alphabetical order is a brief recap.

Most of the questions were answered by Chairman Michael Somen and Executive director David Somen

Accounts: there were two balance sheets and P&L’s in the accounts which caused some confusion, but it was explained that one set was audited while the other was included to guide shareholders on the position of the company taking into account recent consolidations (Openview was acquired).

Blogger moment; as I was finishing my lunch, executive director David Somen was greeting shareholders and charring so I asked him about the company’s prospects: He said it’s a good for investors and that AK was the second best performing share on the NSE after Equity Bank. On acquisitions he added that Kenya was not easy as most of the ISP’s of significance were not local entities, so they may look regionally for growth.

Collapsed brokers: two shareholders raised the matter of shares being sold without owners consent at different times – but each time, the chairman deferred them since they did not relate to AK shares

Computing industry one shareholder complained that the AK report was scanty on the industry (computing, ISP, technology etc.) and that the company should in future incorporate a management report on their performance in the industry. The chairman said that would be done.

Directors’ fees: while one shareholder considered it quite large, directors replied that they had actually reduced the fees 20 million from 50 million shillings before to be in line with other listed companies.

Dividend one shareholder complained that it was not enough and the company had undertaken too many corporate social responsibility (CSR) activities, diluting the dividend. The question got a lot of applause and the Chairman said they would take that into consideration in future (heavy CSR was also an issue at Standard Chartered AGM a few years ago). Another shareholder noted a dividend current liability amount, which the directors indicated was a payment owed to the directors of the company they acquired after the year end (Openview?)

Extraordinary votesIncrease share capital: from 250 million to 500 million this would give the company room to maneuver in terms of acquisitions, bonus, share splits. In answer to another shareholder, D. Somen clarified the CMA/NSE approval was not required to increase the share sin a company, but only at the time of listing Acquire companies: up to 200 million shillings. Directors clarified that the companies falling under this clause were rather small, none larger than 5% of AK’s worth, and it would not be prudent to call an EGM (costing 1 million to 3 million shillings and several weeks time) each time this happened. Following other questions about due diligence, target companies and costs, the directors assured shareholders that all decisions would be made with a view to maximizing shareholder value and they would inform shareholders fully about acquisitions. The increased share capital would enable them to take on new shareholders whose companies they acquired. They have talked to several, but not ready to sign any deals yetESOP; vote to allocate new shares (about 1.35%) to the employee share ownership plans (ESOP). directors explained that it would enable them to maintain their unparalleled staff retention in the industry and that all 250 employees were shareholders which improved their commitment to the company. D. Somen explained a bit about the scheme which options were exercised over several years and ensured employees stayed on to reap the maximum from AK. This week the Nation Media Group announce plans to create an ESOP – that would be about the 3rd largest shareholder in the company, its time more oversight was given to the professional investment management of ESOP’s

Post election violence directors reiterated that they did not expected the early 2008 events to have an impact on the company’s outlook for the year which the anticipated to be 50% – 60% growth

Venue: was the Nairobi Arboretum and I heard many shareholders complain about its (i) inaccessibility – not public transport/or shuttle organized by company (ii) no directions – once they found the ‘park’, it was vast forest with no indication as to which corner the event was being held

Verdict: apart from the location, was a nice first outing for a newly listed company. It pays to have a strong chairman, able company secretary (Fiona Fox who is leaving the company after the AGM) and directors who can readily and confidently answer questions put to them by shareholders – 70% of which are mundane and/or repeated at every other AGM.

The 2006 EABL AGM was held at Safari Park Hotel in November 2 at 11:00 a.m. Registration was a breeze – with almost as many proxies as shareholders and it was a very quick AGM thereafter with the agenda– approval of accounts, dividend, directors’ election & remuneration and auditors – all done within a half hour. With a full board le by Chairman Jeremiah Kierieni and MD Gerald Mahinda, all directors except for Evans Mwaniki (KQ chairman)

New finance director C. Caldwell was added to the board while Wanjiku Mugane was also re-elected. However, two directors, the Chairman and Richard Kemoli, who are both over 70 years, have to be endorsed each year to continue as directors.

I had thought of putting a shareholders vote over the matter in the interests of opening up the board to younger people and women but I felt that I would have been lynched. Needless to say, no shareholders objected on account of their age.

AOBThe Chairman had urged shareholders, many of whom who – in addition to proposing or second agenda items – also congratulated the board, made speeches or tried to ask questions, to refrain till after the agenda was done. One of the first was on the race with Safaricom and the Chairman assured shareholders that the company would strive to wrest back the top earnings crown from Safaricom. Early on it appeared that there would be very few questions, but here are some of them:

– Increase dividend and bonus shares: is a recurring them at all AGM’s and EABL also had its share. There were many variations of the same question, some shareholders talking of previous board who had been more generous. Chairman explained that they can’t increase dividend for a few small shareholders as everyone get an increase. It was also troubling to see a graphic in the annual reports that showed shareholders receiving 20% of payments from the company earnings while 70% goes out as taxes to the government. – Minority interest: There’s a huge payment of profits for minority interest that doesn’t compute in the list of shareholders. MD explained that South African Breweries owned 20% of Kenya Breweries and Diageo owns 54% of UDV. KBL and UDV pay dividends to these two companies and whatever is left now goes to EABL shareholders.– CSR: are you meeting your commitment to devote 1% of profit to corporate social responsibility? MD said CSR last year was allocated about 45m and this year will get about 80m. However, like at the Standard Chartered meeting, CSR is not a popular topic at AGM’s. One shareholder, while commending EABL and Nation media group for helping with famine relief and other disasters, they should put shareholders first – and he went on to lament how the company has never acceded to repeated shareholder wishes for more dividends or bonus shares. – Are all shares fully issued re: ESOP? MD explained that shares for the ESOP are acquired from the market– Why have sports sponsorships declined? Chairman replied is that they still sponsor a lot of sports such as soccer and horse racing – but the funds are disbursed from HQ for better control and monitoring. – Missing or discontinued beer brands; MD replied that they discontinue slow moving brands like pilsner ice and senator special to put more effort into others like white cap light and citizen. He also said they would announce such decisions to the public in future. – Hot Button: Barclays Bank It started with a misunderstood question from one shareholder who wanted dividends to paid as cash in rural areas for those who don’t have bank accounts. Chairman answered that the company had a program with Barclays bank where dividend cheques were banked without commission. One manager was there from Barclays who unsuccessfully tried to explain the issue. More questions were shouted out leading the Chairman to ask that they talk to the Barclays man after the meeting had ended. I went through this problem a few years ago – many shareholders want to cash their dividend cheques immediately – and while this is free for Barclays account holders, there’s a fee of a few hundred shillings if you don’t have a Barclays account. (also bank’s also make some easy money when new investors choose to cash their IPO refund checks immediately – for a fee of course)– Goodies cap (pilsner), t-shirt (sengenge), lunch box (chicken, sandwich, juice, yoghurt, water, cake, apple, orange, egg)